HYBE Acquires 15% Stake in K-Pop Competitor SM Entertainment

HYBE, the company behind K-pop groups BTS and TOMORROW X TOGETHER, has acquired a leading stake in competing K-pop company SM Entertainment, home to artists including NCT 127, Super M and Aespa. According to a regulatory filing posted Friday (Feb. 10) in Seoul, HYBE acquired shares in the company worth 422.8 billion won ($334.3 million), making it the company’s largest shareholder.

HYBE purchased 3.5 million shares from SM Entertainment founder Lee Soo-man, SM Entertainment’s largest shareholder, at 120,000 won ($94.88) per share, a 21.8% premium over the prior day’s closing price. SM Entertainment shares rose nearly 19% to 117,000 won Friday morning before falling to 109,600 by mid-morning.

The deal gives HYBE a 14.8% stake in the publicly traded music company, which has a market capitalization worth roughly $1.8 billion. HYBE’s market capitalization is worth roughly $6.5 billion.

Lee, who is currently embroiled in a power struggle with SM Entertainment’s management, had owned roughly 18.5% of SM Entertainment’s outstanding shares, according to the company’s investor relations website. Following the sale to HYBE, he is left with roughly 869,000 shares and a 3.7% stake. Lee has a put option to sell his remaining shares one year after either HYBE’s purchase or the date of the business combination, whichever comes first, according to the filing.

Korean tech company Kakao, the owner of the music streaming service Melon, announced on Tuesday it would acquire a 9.05% stake in SM Entertainment, making it the company’s second-largest shareholder. Lee opposes Kakao’s investment, however. According to a report, Lee intends to called SM Entertainment and Kakao’s plan an “act of illegality against the commercial law and article of association” in which SM Entertainment would issue new stock and convertible bonds.

Kakao’s investment would increase the number of SM Entertainment’s outstanding shares and dilute other shareholders’ stakes. On March 6, according to a Kakao regulatory filing, Kakao will be issued 1.23 million shares and bonds that can be converted in March 2024 into 1.14 million shares. The additional 2.37 million shares would increase the outstanding shares from 23.8 million to 26.2 million and reduce HYBE’s stake from 14.8% to 13.5%.

The investment in SM Entertainment is HYBE’s second major deal in as many days. On Wednesday, HYBE America announced it had purchased QC Media Holdings, the parent company of Atlanta-based hip-hop label Quality Control Music. The $300 million deal adds artists including Migos, Lil Baby, Lil Yachty and City Girls to HYBE’s roster and puts the Quality Control roster under the leadership of HYBE America CEO Scooter Braun.